Alberta regulator turns to Supreme Court on abandoned well ruling

The Canadian Press

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015.
, REUTERS/Nick Oxford

CALGARY -- Alberta's energy regulator has asked the Supreme Court of Canada to review a ruling that could allow energy companies to walk away from cleaning up abandoned oil wells and affect industrial sites across the country.

In documents filed Tuesday, the regulator formally applied to the top court for leave to appeal the so-called Redwater decision.

In May 2016, an Alberta Queen's Bench judge ruled in favour of the bankruptcy trustee of Redwater Energy Corp. The court ruled the sale of assets from bankrupt energy companies should go first to creditors, not to cleaning up the mess from the company's operations.

"The decision's resulted in unacceptable risks to Albertans and it presents an environmental risk across Canada to all industrial sectors," said Ryan Bartlett, spokesman for the Alberta Energy Regulator.

The Redwater Energy Corp trustee and its lender, ATB Financial, wanted to sell off the company's remaining producing wells to pay creditors. They argued a bankruptcy trustee is free to pick and choose from among the company's assets and disclaim unproductive oil and gas wells.

Disclaimed wells would be abandoned and left to the Orphan Well Association, an industry-funded and government-backed group, to clean up.

The regulator argued money from the sale of the productive wells must be used to cover cleanup expenses for the unproductive wells.

But in a 2-1 decision released in April, Alberta's Appeal Court backed the original judge, saying federal bankruptcy law takes precedence over provincial environmental rules.

Bartlett said that position creates an incentive for producers to offload the costs of cleaning up old, declining wells -- especially since the drop in oil prices over the last couple years has increased the number of bankruptcies in the oilpatch.

"Disclaiming unprofitable sites allows companies to reap the benefits of natural resources while avoiding the costs to repair the land," he said. "It can permanently impair the environment, the economy and safety of Albertans."

Legal experts have also pointed out the case exposes a conflict between federal and provincial law.

"The practical effect of this decision is that the (regulator's) authority to enforce abandonment orders at the cost of the licensee is unenforceable at precisely the time when the (regulator) most needs to be able to exercise that power -- i.e. when the licensee is insolvent," Nigel Bankes, chairman of resource law at the University of Calgary, wrote in an Alberta law blog.

"The entire provincial scheme for protecting Albertans from the abandonment costs in relation to non-productive wells is seriously compromised."

The case is being watched across Canada. Both British Columbia and Saskatchewan have backed the regulator's request for an appeal. The Farmers' Advocate Office and Dene Tha' First Nation also support it.

The regulator said that since the Redwater decision came down, about 1,000 sites have been disclaimed with estimated liabilities of more than $56 million. The Orphan Well Association's inventory has more than doubled from almost 1,200 to more than 3,200.

In May, the growing backlog of abandoned wells prompted the Alberta government to loan the association $235 million to hasten their clean-up.